Revised Geographic Adjustments to Improve Payments

Geographic adjustments should be used to ensure the accuracy of payments, said the committee that wrote the report, but they are not optimal tools to tackle larger national policy goals such as improving access to care in medically underserved areas.

Adjustments to Medicare payments based on geography are intended to account for regional variations in wages, rents, and other costs incurred by hospitals and individual health care practitioners. Federal law requires geographic adjustments to be budget neutral, meaning any increase in the amount paid to one hospital or practitioner must be offset by a decrease to others. In its previous report, the committee recommended changes to the data sources and methods used to calculate payment adjustments to achieve greater accuracy.

Using a series of statistical simulations and analyses in the second phase of the study, the committee concluded that its recommendations, if adopted by the Medicare program, would improve the technical accuracy of payments, and these payments would increase or decrease by less than 5 per cent on average for the majority of hospitals and most physicians. The committee acknowledged that seemingly small percentages could make significant differences to providers and organisations striving to provide high-value health care.

The simulations showed that the committee's proposed new approach using data from the Bureau of Labor Statistics would yield generally higher relative hospital wages in rural areas than the current approach using Medicare data. The changes in how practitioner payments are calculated would result in an overall payment reduction of just under 3 per cent to health professionals in nonmetropolitan counties and an aggregate increase of less than half of 1 per cent to those practicing in metropolitan counties.

There is a general perception that variations in payment rates could affect where health professionals decide to practice and contribute to regional differences in the availability and quality of care. Given the relatively modest payment changes that would occur in many regions and given that geographic adjustments are only one factor in Medicare payments, revising these calculations may not have a significant overall impact on the distribution of providers and on improving care access and quality, the report says.